The 3DS’s blockbuster success could be Nintendo’s downfall

The universally expected, steep sales warning for the Wii U console finally happened. So Nintendo has basically acknowledged its latest home console is flopping. Reviving the Wii U now that the PlayStation 4 and Xbox One have so much momentum is probably impossible. Unfortunately, the Wii U’s dismal flop will not push Nintendo to re-examine its current strategy, because its handheld console 3DS is such a monster hit. The latest Famitsu numbers that detail sales during the industry’s post-New Year hangover give us a good view of what is preventing Nintendo from changing.

This is a period when console and software sales decline steeply from New Year highs. Yet the new Kirby title had an astonishingly vibrant debut, selling 225,000 units in a week in Japan for the 3DS. It’s an aging, somewhat boring franchise that has lost most of its sheen in North America. But in Nintendo’s home market, this nostalgia-friendly character still racks up hot numbers on the portable console. The new 3DS Pokemon title topped a surreal 4.1 million units in Japanese sales during the same week. The new 3DS Monster Hunter game is closing in on 3.4 million units. The new Animal Crossing game hit 4 million units.

Despite its huge home console flop, Nintendo is minting money on its handheld console, milking old franchises with repetitive, formulaic sequels that improve graphics and introduce some new mechanics, but essentially recycle themes from past decades. This strategy is working exceptionally well in nostalgia-prone Japan and pretty well in the U.S. market.

The problem here is that the reason why the Wii U flopped so badly is that tablet and smartphone games are killing the mid-list, casual titles that Nintendo excels in. The only way to survive in the home console business now is to create grand, operatic titles with enormous scope and photorealistic graphics. Nintendo obviously thinks it can escape from this arena into the safe womb of the portable console market, where it can relive its Nineties and Noughties halcyon days endlessly.

But that is not going to work. Smartphones and tablets killed the demand for Nintendo’s home consoles first, but they are not going to leave the portable console market unscathed.

The sophistication and depth of tablet games is improving by leaps and bounds. The US mobile game market is being gradually taken over by relatively deep strategy and simulation games like Clash of Clans and Game of War. Addictive card battle games like Marvel War of Heroes are gaining revenue traction. Cooperative games like Minecraft are spawning huge virtual communities that Nintendo never learned how to build for its 3DS titles, which were originally designed to be solo games. Angry Birds Go! is a current example of how mobile vendors are starting to learn how to copy the core elements of Nintendo’s Mario Kart series with surprising pizzazz.

In the Japanese portable game market, the time has stopped. A dozen big hit series from long ago keep getting revived and selling in massive quantities again and again. This is blinding Nintendo to the fact that it is facing relentless advances in mobile game quality and gloss. There is little doubt that the company will continue clinging onto its proprietary hardware/software strategy, egged on by 3DS success.

And this prevents Nintendo from attacking the only market that would guarantee its long-term success: freemium games on smartphones and tablets. As a result, Nintendo is not learning how to properly leverage Facebook or build virtual communities, something that is becoming the forte of companies like King and Supercell.

Japan’s gaming emperor has turned into a creature of the past, a relic mechanically repeating ancient rituals of Kirby and Link.